uploads/// Year Treasury Note Issuance versus Bid Cover Ratio

Indirect Bidders Participated in the 3-Year T-Notes Auction

Lynn Noah - Author

Apr. 21 2016, Updated 9:07 a.m. ET

Three-year T-notes

The U.S. Department of the Treasury holds monthly auctions of three-year Treasury notes or T-notes. The yield on three-year T-notes is related to movements in the federal funds rate. Therefore, it attracts a lot of attention from stock and bond market participants.

Mutual funds such as the MFS Government Securities Fund – Class A (MFGSX) and the Prudential Government Income Fund – Class A (PGVAX) provide exposure to three-year T-notes. ETFs like the iShares 1-3 Years Treasury Bond Fund (SHY) invest in three-year T-notes.

Article continues below advertisement

Key takeaways

  • The auction was held on April 12.
  • The auction size was set at $24 billion—the same as the previous auction.
  • The coupon rate came in at 0.88%—lower compared to 1.0% in March’s auction.
  • The high yield for March’s auction fell and came in at 0.89%—compared to 1.0% in the March auction.
  • The bid-to-cover ratio rose by 0.4% to 2.72x in April’s auction. The ratio depicts the overall demand for the auction.

Yield analysis

The yield on three-year T-notes rose by 5 basis points in the secondary market after the auction from 0.85% on April 11 to 0.90% on April 12.

Demand analysis

The fundamental market demand for three-year T-notes rose in the April auction. Total competitive bids (indirect+ direct) came in at 67.4% in April—compared to 55.3% in the previous month.

Indirect bids rose to 56.0% in April from 46.2% in March. Indirect bids are mainly from foreign central banks. Meanwhile, direct bids also rose from 9.1% in March to 11.5% in April. Direct bidders include money managers like Wells Fargo (WFC) and Invesco (IVZ).

Due to the rise in market demand, the share of primary dealers fell to 32.6% in April from 44.7% a month ago. Primary dealers include companies like JPMorgan Chase (JPM) and Deutsche Bank (DB). A fall in the percentage of primary dealers indicates strong fundamental market demand.

In the remainder of this series, we’ll look at the Treasury bills auctions last week.


Latest MFS Government Securities Fund News and Updates

    © Copyright 2022 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.